Eurasian expansion

The second half of 2009 saw developments in the realisation and planning of Eurasian natural gas pipelines of potentially far-reaching significance.

Turkmenistan
The pipeline perhaps recently most noted in the press, and with good reason, was the Kazakhstan-China leg of the Turkmenistan-China gas pipeline. This latter will also transit from Uzbekistan, ultimately bringing 1.4 trillion ft3/yr from the Central Asian country to China’s East Asian coast.

The Turkmenistani segment runs 117 miles from the eastern part of the country, then 326 miles across Uzbekistan and another 803 miles through Kazakhstan, before passing into China, where it will run to Shanghai and Guangdong province for another 2800 - 3100 miles. This has entailed, within China, construction of a second West-East Pipeline, parallel to one opened several years ago from Xinjiang to Shanghai.

As the CNPC-Turkmengaz contract is not a public document, the price agreed is not precisely known. However, it is reliably reported to be over US$ 3/1000 ft3. Deliveries from Turkmenistan to China are estimated at 210 billion ft3 in 2010. After that quantity reaches 350 billion ft3/yr, the second phase will be inaugurated, adding 600 billion ft3/yr.

The new gas pipeline from Turkmenistan, thus originally projected to carry 1 trillion ft3/yr, will be constructed to carry 1.4 trillion ft3/yr, if not more in subsequent stages. China is set to receive only 1 trillion ft3/yr. The other 400 billion ft3/yr will be generated and at least partly consumed in Kazakhstan.

The Turkmenistan pipeline is indeed, formally speaking, a knock-on effect from Kazakhstan-China negotiations previously initiated by CNPC with KazMunaiGaz for a 350 billion ft3/yr project.

Shipping to Iran
While the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline is still on hold due to the security situation in Afghanistan, an expanded gas pipeline from Turkmenistan did open at the end of the year to north-eastern Iran for domestic consumption. The existing 115 mile Korpeje-Kordkuy pipeline can theoretically carry 280 billion ft3/yr, although this volume has never been reached. The most credible throughput figure for 2008 is 170 billion ft3, including a stoppage over a price dispute lasting through the year’s first quarter.

The new Dovletabat-Sarkhs-Khangeran segment is an 18 mile extension of the existing pipeline, scheduled to add 210 billion ft3/yr to current volumes in its initial stage with a possible doubling of that figure, so that total deliveries to Iran might reach 700 billion ft3/yr. The new pipeline’s real significance is that it connects the existing one up to the Dovletabad-Deryalyk pipeline, itself part of the Central Asia-Centre pipeline, through which Gazprom imports gas from Turkmenistan.

Involvement with Russia
Gazprom imported no gas from Turkmenistan from April 2009 until the end of the year because of an explosion in the pipeline (for which Ashgabad blamed Moscow). By the end of December, the pipeline segment was reconstructed, and Russia agreed to pay approximately US$ 7/1000 ft3, nearly twice what it had paid in 2008. However, volumes in 2010 will reach only slightly over 1 trillion ft3, instead of the 1.75 trillion ft3 that Russia averaged earlier in the decade.

The end-of-the-year agreement, as announced, includes terms for Russia to rebuild the so-called East-West Pipeline, which transports gas within Turkmenistan across the southern part of the country, as well as to reconstruct the Turkmenistani segment of the Caspian Coastal Pipeline (CCP, also called the ‘Pre-Caspian’).

Turkmenistan’s contract with China, South Korea and United Arab Emirates
It would be amiss to fail to note the contract signed at the very end of the year for development of the South Yolotan field in Turkmenistan. At the end of the year, Turkmenistan awarded a US$ 9.7 billion contract to a consortium of companies from China, South Korea and the United Arab Emirates. South Korea’s LG International and Hyundai Engineering will join CNPC and the UAE’s London-listed Gulf Oil and Gas FZE and Petrofac International in developing the South Yolotan gas field - which, according to British auditors Gaffney Cline is likely to hold approximately 635 trillion ft3 of gas, with a high-range estimate of over twice that amount.

Nabucco, South Stream, White Stream
2009 also saw continued jousting between the Nabucco and South Stream gas pipeline projects. In mid-May, it seemed that the European Union and Turkey had resolved two major differences that were preventing agreement on the terms for Nabucco, namely, pricing and the legal regime for Turkish consumption of gas flowing through the pipeline. Days later, however, Turkey’s Prime Minister Recep Tayyip Erdogan met Putin in Sochi and the same obstacles to agreement with the EU reappeared after Erdogan agreed to Putin’s offer to reconvert the South Stream pipeline project (Russia to Europe directly under the Black Sea), back into a revised Blue Stream Two project (Russia to Europe under the Black Sea and via Turkey).

The ‘White Stream’ project foresees the transit of gas from Azerbaijan through Georgia and across the Black Sea to Romania (either supplying Ukraine on the way or without intermediate landfall). If Azerbaijan’s gas follows this route connecting through the Ukrainian system, then it could not only supplant Nabucco but also reach Poland directly and other markets further onward.

The route through Ukraine may be rendered superfluous by the construction of the Nord Stream pipeline projected to start in 2010 following the granting of permits by Denmark, Sweden and Finland during the course of 2009.

Conclusion
Last year’s trends point towards a continuing European paralysis of will, permitting a now clearly-emerged Russian-Turkish energy entente to exert a double chokehold on gas supplies: while volumes of gas from the Caspian Sea basin that could go westwards begin to flow in the opposite direction.

To read the article in full, please see the February 2010 issue of World Pipelines. Subscribers can download a PDF of the issue by signing in and clicking on 'digital editions'.

The signing of an intergovernmental agreement between Turkey, Bulgaria, Romania, Austria and Hungary in Ankara on 13th July was a significant step towards construction of the E7.9 billion (US$ 11.05 billion) Nabucco gas pipeline, which will bring Caspian gas to Europe via the Balkans, Turkey and the Caucasus.